Payment of death of participant (QDRO but ex-spouse still designated beneficiary)

[Guest AEA]

A 401(k) plan received a QDRO for an active participant's account. The QDRO created a separate interest for ex-spouse under plan of 1/2 of account. Plan divides account after QDRO approved by court. QDRO does not address spouse as surviving spouse or state (in any form) that the ex-spouse waives any other interest in the account other than her 1/2. Four years later, participant dies with a beneficiary designation to the ex-spouse and no contingent beneficiary. Ex-spouse wants $ to go to son of her and participant.

I have already suggested a disclaimer (guess that trust and estates law class was good for something), but, with no contingent beneficiary, it is unclear where the account would go. Plan default if no designation is spouse, then estate while state law default is spouse, then children - unsure which would trump the other. I have also told the plan administrator to tell ex-spouse to go talk to a probate attorney.

Why did I think that there was case law on this type of situation?

[QDROphile]

The plan administrator's job is to follow plan terms and beneficiary designations. If the plan provides for disclaimer, then follow plan terms about how to determine the next order of beneficiary. In your case it sounds like the estate.

[Guest AEA]

Not that lucky as plan does not address disclaimers. However, I thought that it would still be allowed to follow one if a proper disclaimer was filed with the plan administrator.

[Kirk Maldonado]

My guess is that the divorce decree stated that each spouse waives any interest in the other spouse's property. Some courts have held that this effectively waives the designation of one's spouse as one's beneficiary. Other courts have disagreed with that analysis.

My recommendation is that the plan retain competent ERISA (not probate) counsel to advise it on how to proceed.

[mbozek]

Why not follow plan procedure and pay ex spouse as designated bene. Under fed case law plan procedures trump state divorce laws (assuming that plan does not automatically remove spouse as bene upon divorce). Spouse can transfer the money to child either under disclaimer or as a gift eligible for $1,000,000 exemption from fed gift tax if chld does not inherit 100% of benefit under state intestacy law. If child is a minor then guardian should be appointed as custodian of funds.

Plan could request that spouse and estate of deceased file a claim for benefits before awarding benefits to ex-spouse.

[Guest AEA]

Thank you to everyone for their responses. I was looking for the cases that Kirk mentioned and found a few in our circuit. Unfortunately, they do not provide very clear guidance (lots of facts and circumstances reviews). My concern with following the black letter of the plan and just paying the ex-spouse is that the estate would make a competing claim and the Plan would be in trouble. However, there appears to be some support to simply paying the first claimant so long as there is no knowledge of a second claimant.

If the second claim appears before the ex-spouse is paid, interpleader could be filed with a court.

Lastly, although it is apparent that no one else agrees, this question was more than just an ERISA issue. ERISA does not govern disclaimers, state probate law does - I do not want my plan administrator drafting a disclaimer for a designated beneficiary and recommend that the ex-spouse get her own counsel. Also, ERISA does not provide for beneficiary identification when there is no contingent beneficiary, state probate law does when the plan provides that the account goes to the estate and there is no will. Again, I did not want the plan administrator to tell the ex-spouse that a disclaimer will result in her son receiving the account when this may not be the case.

Thank you again for the assistance.

[mbozek]

PLan has two options:

pay the spouse as the designated beneficiary under the plan which is permitted under supreme ct cases since state laws are preempted and let the spouse make a gift of the benfits to the child or

the ex spouse as the guardian of the child can file a claim for benefits on behalf of the child for payment as the beneficiary of the employee's estate. The plan could pay the funds to her as trustee or guardian of the child. The only risk to the plan is that the other heirs (usually the parents) would sue the plan in fed ct on the grounds that they are entitled to a portion of the distribution under state intestacy law which is preempted by ERISA. To avoid such risk plan can contact the other potential heirs and obtain a release and waiver although there will be an expense in conducting an heirship search.

[401 Chaos]

I agree with Kirk that the Plan's best option is to obtain and follow advice from ERISA counsel as to appropriate course of action in light of the applicable facts and circumstances. (Perhaps AEA is counsel seeking to provide just such advice?) At any rate, the Plan needs to have a clear understanding of its jurisdiction's take on applying federal common law of waiver principles as done in Keen v. Weaver or other federal common law principles that arguably alter the general Egelhoff ERISA preemption analysis. If there is support for applying such federal common law principles in this jurisdiction, I think the Plan may be wise to go the next step and see if the divorce decree provided for a waiver of the spouse's rights in the Plan.